Relied upon for the heavy lifting: can employment protection legislation reforms lead the EU out of the jobs crisis?

• Author: Jason Heyes,Paul Lewis
• Published date: 01 March 2015
• DOI: http://doi.org/10.1111/irj.12095
• Date: 01 March 2015

Relied upon for the heavy lifting: can

employment protection legislation reforms

lead the EU out of the jobs crisis?

Jason Heyes and Paul Lewis

ABSTRACT

This article examines the current drive within the European Union to weaken employ-

ment protection legislation. It subjects the case for reform to critical scrutiny and

argues that labour market deregulation and the erosion of employment and social

protections are reducing workers’ security while failing to stimulate economic

recovery.

1 INTRODUCTION

The economic crisis that began in 2008 encouraged a lively debate about which

policies are conducive to positive long-term economic performance and the economic

theories on which those policies are founded. It appeared that the orthodoxies that

had shaped economic policy during the preceding 30 years had been discredited while

new life was being breathed into old ideas. Media and politicians of all political stripes

proclaimed the death of neo-liberalism and argued that the dominant economic

concepts of ‘rational expectations’ and ‘efficient markets’ should be consigned to the

dustbin of history. The former French president Nicolas Sarkozy’s claim that ‘Laissez

faire is finished’ (Callinicos, 2010: 5) neatly captured what appeared to be the con-

sensus view. By contrast, Keynesian ideas received a favourable hearing for the first

time since the 1970s and there appeared to be a general acknowledgement of the

disastrous consequences of the deregulation of the banking and finance sector.

Markets, it seemed, did not necessarily ‘know best’. Weakened faith in the merits of

deregulation extended to the labour market. The OECD (2011) acknowledged that

many countries with weak labour market institutions, such as the United States and

UK, had experienced more substantial increases in unemployment than countries

such as Austria and Germany, where institutions were more robust.

The return of Keynesianism to the policy spotlight proved to be short-lived, as did

political enthusiasm for re-regulating the banking and finance sector. Many of the

orthodoxies that appeared to have been swept away by the crisis made a remarkable

❒Jason Heyes is Professor of Employment Relations at the Work, Organisation and Employment

Relations Research Centre, Sheffield University Management School, University of Sheffield and Paul

Lewis is Lecturer in Political Economy at Birmingham Business School, University of Birmingham, UK.

Correspondence should be addressed to Jason Heyes, Sheffield University Management School, Sheffield,

S10 1FL; email: j.heyes@sheffield.ac.uk

Industrial Relations Journal 46:2, 81–99

ISSN 0019-8692

© 2015 John Wiley & Sons Ltd

recovery as the economic crisis continued and governments began to pursue austerity

measures. Clinging to failed ideas is hardly a new political phenomenon. As Quiggin

(2010) has recently argued, many influential economic theories and assumptions have

‘refused to die’ despite repeated evidence that they are highly flawed. Examples

include the claim that spending by the state ‘crowds out’ private investment and that

policies that favour the well-off will in the long-run produce ‘trickle down’ effects that

benefit the poor. The belief that employment protection legislation (EPL) causes

unemployment and is bad for competitiveness can be added to this list. EPL regulates

individual and collective dismissals and the use of temporary contracts by employers.

It sets limits on employers’ ability to dismiss their employees and provides workers

with rights in respect of consultation and severance payments. The claim that EPL has

harmful economic consequences gained in influence after the 1970s, as Keynesian

prescriptions for reducing unemployment gave way to supply-side analyses and policy

recommendations. Labour market flexibility was vigorously pursued by Conservative

governments in the UK during the 1980s and 1990s. Although other European Union

(EU) member states tended to proceed at a slower pace, reforms were nevertheless

widespread during this period, particularly in relation to the weakening of restrictions

on fixed-term employment, a policy reform that was encouraged by the European

Commission. During the early 2000s the Commission began to call for reform of

employment protection regulations relating to regular jobs, claiming that these were

necessary in order to improve the ability of marginally employed workers to make

transitions to more secure employment (Countouris and Freedland, 2013). EU

member states were, however, encouraged to ensure that increases in labour market

flexibility were accompanied by measures to provide workers with employment secu-

rity, a policy combination referred to as ‘flexicurity’ (European Commission, 2007).

The crisis may be understood as a punctuation point, where for a short period the

supply-side agenda was questioned, including the merits of de-regulating markets

(OECD, 2011). However, once it became clear that inter-state fiscal stimulus could

not be applied within the eurozone at the current level of political integration, and

that the European Central Bank (ECB) would not loosen monetary policy or directly

ease bond market tensions for the most vulnerable states, there came a turn to fiscal

austerity, internal adjustment and a re-embracing of the supply-side paradigm with a

vengeance. Since the start of the crisis, many EU national governments have eroded

constraints on employers’ ability to dismiss their employees. In several countries, the

reform programmes have been undertaken at the behest of the Troika of the ECB,

International Monetary Fund (IMF) and European Commission. In others, reforms

have been adopted voluntarily in an attempt to stimulate employment and growth.

Employment protection has become a target for reform by the European Commission

and the ECB as it is held to affect the employment rate and competitiveness, which are

core concerns of the Europe 2020 growth strategy. The dilution of EPL is regarded by

policy makers as a solution to stubbornly high levels of unemployment in the EU,

which particularly affect younger workers, and a means of achieving improved social

inclusion. By making it easier for employers to dismiss employees, overall hiring

activity by risk-averse employers should increase and divisions between labour

market ‘insiders’ and ‘outsiders’ diminish. This article subjects these assumptions to

critical scrutiny and argues that policy makers’ faith in labour market deregulation as

a path to labour market recovery is misplaced. The article begins by discussing the

belief that EPL is harmful to employment, tracing the influence of this view on EU

labour market policies. The article goes on to examine the ways in which governments

82 Jason Heyes and Paul Lewis

© 2015 John Wiley & Sons Ltd